A complete Financial blog with special emphasis on news, analysis and fluctuation in Indian Stock Markets & its indices NSE Nifty and BSE Sensex. Constant tracking of tug-of-war between the Bulls & the Bears. Also read about various Asset class such as IPO, Bullion, Commodities, Mutual Funds, Real Estate among others.

Thursday, May 21, 2009

'Buy on small Dips' Strategy mentioned above is meant only for Traders & not for Investor fraternity. Time for 'Value Picking' is a bit behind us. The current euphoric rise only warrants trading bets & not investment bets at this point in time. However, even investors will get opportunities at a later period. Wait for it.

Remember, markets always keeps giving chances, just that you have to grab it with both the hands. Investors have to hold their breath for some time unless the excess euphoria & valuations are driven-out. Markets will test the patience of investors, as every dip will be bought in from here on. Traders, on the other hand, have to move-on with strict Stop Losses for their tardes irrespective of market levels. There is plenty of opportunities and rationales for the traders to commit themselve to fresh trades even from here.

There is a query from Jamesvaikom in the 'Comments' Section regarding suspicion and a feeling that even Mid-cap stocks are gaining weight in terms of valuations and that even they are showing weakness in the recent market consolidation.

Sir,

I think now even mid caps start showing some weakness. I think it is time to book profit even in mid caps and sit on cash. I think buy on dips after strong rally may be like catching falling knife. what is your view.

Sensex has unilaterally raised from the trough of 8000 levels to a whooping 14000 levels in a small duration of past 2 months time. Most of the large-caps are no more in the 'Comfort Zone' in terms of Valuations. In fact, many mid-caps have gradually shown steep rise to the extent of 15-25% in every passing session. This even as benchmark indices are cooling-off its heals after a big band Range expansion of 20% rise in one session.

Nifty had made an intra-day top at 4500 levels on May 19, 2009. This high was sustained for hardly half hour before profit booking smartly kicked-in. The closing for the day was around 4300 levels. Since than the markets are consolidation what with most of the heavyweight stocks in the index looking far more over-priced in very near-term horizon.

What Next?

What next could be the course of the markets from here? Markets are in a hibernation mode and in an Accumulation zone. Nifty has corrected to 4200 levels as on day's closing.

At current situation, most of the Equity Mutual Funds are holding large chunks of Cash deployable in the equity markets. The post-election rally from Sensex 12000 to 14000 was like a 'Lull' in which no body could participate as it was based on a thin Volume of approximately Rs.3000 crore. Most of FII or MF or Retail Investors missed this gap of 2000 point Sensex rally created on May 18, 2009, on the back of surprising Poll outcome.

Mutual Funds, which are sitting on record Percentage of deployable Cash ranging from 10-25%, will be looking to enter the markets in a slow manner on every dip. All market dips will prove as a boon for these fund houses to infuse money into the markets to reduce their chances of under-performance to indices, in case markets continue to move forward until announcement of upcoming Union Budget.

Along the way, as we have already started witnessing Mid-cap momentum, it is a clear reflection of increased Retail participation in the small counters where usually large institutions remain cautious and away from being too aggressive at.

Mid-Caps Faltering?... Not Really!

Mid-Cap shall show signs of weakness or tiring out during the Sessions when makets fall sharply.Though, they may regain their lost sheen & recover their Momentum as soon as Benchmark Indices settles in a small Consolidation Range within next few Sessions. However, it is recommendable to keep an eye on the 'Valuations' of the stock specific mid-caps before indulging aggressively into each one of them.

Although, there could be a puzzling rider to above discussed strength in Mid-caps. The rally in mid-caps could be a 'Pass-on' game. Some mid-caps may gain momentum, and the positive rub-off may be passed on to other category of mid-caps. Thus, a large universe of mid-caps could catch fire and value to engross and elevate the momentum play.

What with important event like Budget as a next destination, market participants and punters are very much likely to bet on stocks and sectors which are likely to benefit from crucial Budget spending, reforms & initiatives. The Budget related punting has already started. At the same time, markets will also have its eyes open wide and clear as to which crucial portfolio at the centre are being mopped by which prominent leaders.

Sectors that are expected to be in lime light are PSU stocks led by chances of Disinvestment, Banking Stocks led by chances of Reforms, Capital Goods and Infrastructure stocks led by increased spending on Indian infrastructure, Power stocks led by quickening of Power reforms, Education sector stocks led by government's commitment towards Education & most importantly Agricultural stocks led by boost to Irrigation and Agri Projects and spending.

Adjustment of Valuations over Medium-term :

From Medium-term, markets are likely to be over-stretched at this point in time. But, in short-term the momentum is strong and infusions of cash from fund houses at every lower levels are likely to offer downside support to the markets around Sensex 13500-13000 levels at worst.

However, as discussed in above paragraph, over medium-term horizon the valuations certainly look expensive. So, that will be adjusted over next 2 months time depending upon the outcome of Budget and all-important Corporate Results. Gradually, markets as a whole, will adjust its valuations depending upon the final hearing in Corporate Results & actual Performance.

And, that will be the moment of 'Reality Check' for the Indian Stock Markets. Till than, i hope, that the Party Continues... Please note, I may go wrong in predicting all the above said Analysis. But, now that markets have shown a clear cut upside breakout post-poll results, Traders ought to latch on to this 'short-term' bullishness with a trade on the long side. Next, the decisive tide will flow-in, when rest of the factors like Budget outcome and Corporate Results will start dictating the fundamentals, not before a month long time.

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8 comments:

Sir,Thanks for your article. Please continue to do your good works in this blog. What is your view on absence of shorts and short covering in market. As traders are now fearful to go short in market there will be less short covering at higher levels.

Most of the shorts in the system might have been covered on Tuseday and Wednesday itself, as the trend has turned bullish in the near term.

As rightly pointed out by you, there won't be much of a market upmove on the back of short coverings in near future. But, the fresh longs may well be on the anvil on every substantial dip.

However, this is the reason as to why the indices might consolidate for the time being, due to lack of substantial shorts, the covering of which might have triggered any further incremental rallies. But, small but fresh longs shall continue to give support at lower levels and even help towards inching upwards slowly and gradually.

"Why do the mid-caps tend to give better gains then the large-caps; what is the logic behind this behavior. I have observed that thelarge - caps have hardly doubled whereas midcaps has mulitiplie 3 to 4 times. I can't understand this."

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Date: January 30, 2009.

My ViewWith Union Budget round the corner, one can expect Nifty to remain range bound from 4750-5050 & take a directional cue after the Budget outcome. The post-budget bias could be tilted towards the downside as FM could be gearing to withdraw selective sops given to the industry during the recent slowdown & pull the economy out of record deficit.